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California’s Proposed “Wage Shaming” Law Is Another Mess

In yet another measure to expand the scope of California’s equal pay laws, Assembly Bill 1209 proposes an addition to the Labor Code (section 2810.6) requiring larger employers to gather information relating to gender differentials in wages for certain employees. If signed by Governor Brown, section 2810.6 will require employers with more than 500 employees in California to submit this information to the Secretary of State, who will then make it publicly available on the internet. Governor Brown has until October 15, 2017 to sign or veto the bill. As of the date of this Advisory he has not stated his position on the bill.

AB 1209 provides that a gender wage differential does not – in and of itself – constitute a violation of the law, yet it is likely that publication of the required information will create the impression of unequal pay in certain circumstances. This could subject employers to meritless litigation and unwarranted negative publicity, or what some commentators have referred to as “wage shaming.” If enacted into law, AB 1209 would require an unprecedented public disclosure of wage-related information and create a variety of potential legal risks and compliance issues. Business organizations, including the California Chamber of Commerce, have strongly opposed the measure.

Current State of Equal Pay Law in California

For decades, under California Labor Code Section 1197.5 (the “California Equal Pay Act” or the “Act”), California employers have been prohibited from paying employees of one gender less than employees of the opposite sex for “equal work” at the same location.

The Act has been amended in several significant ways in recent years. In October 2015, Governor Brown signed Senate Bill 358, which, among other things, requires equal pay for employees who perform “substantially similar work” (versus “equal work”) across the entire organization (versus the same location). This was a significant expansion of the scope of the law that appears to be an effort to reintroduce the concept of “comparable worth” into the issue of gender wage equality.

The California Department of Industrial Relations (“DIR”) has published a “Frequently Asked Questions” section on its website which interprets “substantially similar work” as:

work that is mostly similar in skill, effort, responsibility, and performed under similar working conditions. Skill refers to the experience, ability, education, and training required to perform the job. Effort refers to the amount of physical or mental exertion needed to perform the job. Responsibility refers to the degree of accountability or duties required in performing the job. Working conditions has been interpreted to mean the physical surroundings (temperature, fumes, ventilation) and hazards.

The Act recognizes that there are several lawful reasons why wage disparities might exist, including: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; (4) differences in education, training, or experience; and (5) some other bona fide factor other than sex. The employer has the burden of demonstrating that one or more of these factors exist in order to defend a claim of wage gender bias.

In 2017, the Act was again amended to specify that an employee’s prior salary history cannot, by itself, justify any disparity in compensation. The legislature had previously made several attempts to prohibit employers from seeking salary history information about applicants for employment (similar to laws recently passed in New York City and San Francisco). Another bill on its way to the Governor’s desk, AB 168, (AB 168) would prohibit such inquiries.

Collection and Submission Requirements

AB 1209 requires covered employers to analyze and submit the following information to the California Secretary of State every two years:

the difference between the mean wages of male and female exempt employees by job classification or title;

the difference between the median wages of male and female exempt employees by job classification or title;

the difference between the mean wages of male and female board members; and

the difference between the median wages of male and female board members.

AB 1209 defines “exempt” as including employees within the white collar administrative, professional and executive exemptions. It is unclear whether the statute will apply to other employees who are treated as exempt under California law (e.g., outside sales and computer professionals). AB 1209 would require employers to “categorize” this information pursuant to the California Equal Pay Act, discussed above. It is not entirely clear, but it appears that the intent of this provision is to require employers to analyze wage differentials between jobs that involve “substantially similar work” without the formal job classifications. Obviously, significant administrative efforts would be required for employers to gather, sort, and calculate the information required by AB 1209 every two years.

Effective Date

If signed by the Governor, covered employers would be required to begin analyzing applicable wage data by July 1, 2019, and would be required to make the first submission of the information to the Secretary of State by July 1, 2020.

What California Employers Should Think About Now

There are many unanswered questions and concerns regarding the application of this potential new law including:

How should an employer calculate the “wages” of its employees? The DIR’s website even points out the lack of clarity in this term. It states: “[a]lthough the law does not specifically define ‘wage rates,’ it refers to the wages or salary paid, and also other forms of compensation and benefits.”

Are employers required to include the value of non-wage benefits such as 401(k)’s and health insurance? If so, how should employers take into account employees who have chosen to waive certain benefits?

Should deferred compensation awarded to an employee be counted in the year it was granted, or in the year it is paid?

The law does not expressly state the time period for which employers should perform the wage disparity analysis.

The law does not specify how employers should take into account employees who have chosen to work on a reduced schedule, those who have taken leaves of absence, or those who have worked only part of the calculation period.

How should employees who transfer from one position to another during the reporting period be handled?

The law requests information on “female” and “male” employees. How should employers handle transgender employees, those who may have transitioned during a reporting period, and those that do not identify as male or female?

If signed by the Governor, we anticipate that employers will discover many more ambiguities and uncertainties in the law as they implement policies for compliance.